Shareholders are known as the real owners of the company that own equity shares issued by a particular company, whereas Directors on the other hand are the individuals who are elected to actually act as the representatives of such shareholders by establishing and implementing policies and decisions and act in the best interests of such shareholders.

Though they both are different in their functionalities, yet they hold an immense importance in a company’s working and its success and that’s why they do also hold an inter-connected relationship between them.

Differences & Similarities:

Appointment:

Shareholders: First shareholders are actually the subscribers of AoA & MoA of that company, whereas the additional/later shareholders are added by issuing of shares and allotment thereon.

Directors: First Directors are actually appointed by Promoters in the AoA as prescribes therein, subject to approval, if any required to be taken, whereas the subsequent appointment happens via EGM wherein Board of Directors appoint such directors after shareholder’s confirmation, and also the Central/State Government/Financial Institutions can also appoint Directors at their individual and respective areas and by following adequate provisions of Companies Act of 2013 or any such law.

Roles:

Shareholders: Owners of the Company.

Directors: Managers of the Company that act on shareholder’s behalf unless expressly specified something else in AoA.

Persons:

Shareholders: Can be any person/entity/LLP/Firm/Society/Trust/Section 8 Company/ or any other artificial or juristic person.

Directors: Only Individuals to act as Directors.

Decision Powers and attached responsibilities:

Shareholders: Engaged in some of the most important decisions of the company like altering Aoa/MoA, declaration of dividend, etc. where their approval becomes mandatory, and that’s why the most important part of any shareholder is to infuse or fill capital of the company and participating in meetings like EGM/AGM, and so on.

Directors: Involved in day-to-day functioning and management of the company and that’s why their most important part is to protect and preserve shareholder’s interest and holding by taking effective and timely decisions of the company and complying with necessary legal formalities.

Minimum Members:

Shareholders: Public Co. – 7 with no max limit, Private Co. – 2 with max 200, OPC – 1

Directors: Public Co. – 3, Private Co. – 2, OPC – 1; whereas Max Directors in all the three can be upto 15 Directors, can appoint more than 15 by special resolution passed in general meeting.

Liability:

Shareholders: Though protected primarily but are liable to pay their unpaid debt when asked for by the board of the Company.

Directors: Liability arises when he/she breaches fiduciary duty or act ultra vires to AoA/MoA of the Company or does something with malafide intention or with negligence. (Here reference can be made of Sec. 166 and Sec. 447 of Companies Act of 2013 that attracts penal provisions and consequences)

Removal:

Shareholders: They are free to transfer their shares subject to AoA of the Company but can’t be forced to exit except by an order of judicial or quasi judicial body like S.C./N.C.L.T

Directors: They can be removed by shareholders in an EGM by a simple majority, and in addition to it, Section 164 also talks of disqualification of directors on certain grounds.

Remuneration:

Shareholders: Entitled to dividend as and when declared by the company whether annual or interim, as per company’s policies and increase in their shareholdings if share price increases.

Directors: Entitled to Remuneration and sitting fees or any other such fees having earned out of doing any kind of official work, subject to restriction given u/s 197 of Companies Act of 2013.

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Disclaimer:- The entire contents of this document have been prepared on the basis of relevant provisions and rules and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information.

Author Bio

Qualification: CS
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Location: Shubham Phophalia, Gujarat, India
Member Since: 08 May 2021 | Total Posts: 54
I am Shubham from Batch 2016-21 of GNLU. I am in my final year of 5 years integrated BA LLB course from GNLU, Gandhinagar, and I have completed Company Secretary Course meanwhile with 3rd Rank in Ahmedabad, Gujarat in CS Professional. I am a keen reader and enthusiastic listener of Corporate laws an View Full Profile

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